Tax Season 2025: myStockOptions Helps Take The Stress Out Of Filing

The tax reporting for income received in 2024 via equity comp or stock sales can be complex, given the year's uneven stock markets and economic uncertainty. Moreover, changes at the IRS under the second White House administration of President Donald Trump could impact the IRS in unpredictable ways.

Mistakes can lead to overpaid tax, underreported income, IRS penalties, or even an IRS audit. The last thing you want is to pay too much tax or incur penalties that take yet more money out of your pocket.

As in every tax season over the past 20+ years, the fully updated myStockOptions Tax Center is here to help. Our resources provide expert yet easily understandable guidance on tax returns that involve stock options, restricted stock, restricted stock units, performance shares, stock appreciation rights, employee stock purchase plans, and sales of company stock. In addition to updates for 2025, the website's content includes new videos and infographics.

Tax Center Resources

• Core articles and FAQs spell out the core rules and most common mistakes people make with stock grants on their tax returns. Taxpayers, financial advisors, CPAs, and Enrolled Agents can quickly run through these to be sure they submit error-free returns.
• The reporting of stock sales is made clear by special FAQs with annotated how-to diagrams of IRS Form 8949 and Schedule D.
• Diagrams of Form W-2, Form 3922 (for employee stock purchase plans), and Form 3921 (for incentive stock options) illustrate how companies report equity compensation income to employees.
• Infographics illustrate the process of tax reporting on key IRS forms.
• A fun interactive quiz on tax-return topics lets you test your reporting knowledge in a painless way, before you file your return, and links to related content from the answer key.
• Brief videos include a guide to avoiding costly tax-return mistakes that can lead to the overpayment of taxes. A new video at the myStockOptions YouTube Channel, embedded into Tax Center content, goes over the top 5 things to know before you report stock sales on your tax return.
• Engaging podcasts convey tips for tax returns.

Special Webinar Available To Stream On Demand

On February 12, myStockOptions.com held a special webinar on tax returns involving equity compensation and stock sales: Tax Returns With Equity Comp & Stock Sales: Prevent Mistakes & Avoid Overpaying Taxes. Now available for immediate streaming on demand, the webinar features three tax experts (two CPAs and an Enrolled Agent):

• Stephanie Bucko, CPA, CFA®, Mana Financial Life Design
• Dan Hodgin, CPA, Silicon Valley Tax Group
• Daniel Zajac, CFP®, EA, Zajac Group
• moderator: Bruce Brumberg, JD, editor-in-chief of myStockOptions

The panelists provide practical insights on mistakes to avoid that can lead to major tax overpayments or IRS trouble. They also discuss their takes on the future of the IRS under President Trump. In addition, they present real-world case studies, including one showing how to use information in tax returns to create better financial plans.

The on-demand webinar offers 2.0 CE credits for CFP, CPWA/CIMA, and CEP/ECA (the live event also provided CE for CPAs and Enrolled Agents). A detailed agenda is available at the webinar registration page.

Leading Advisors On Year-Start Planning For Stock Options, RSUs, ESPPs

Financial and tax advisors routinely use the year-start period to get their clients to consider what’s next for their stock comp and holdings of company shares. Decision-making moments come at you fast when you have stock options, restricted stock units, an employee stock purchase plan, or other forms of company equity comp. This article presents what some leading advisors tell their clients.

Thinking Ahead: Questions To Ask

John Barringer, the managing partner of Executive Wealth Planning in Denver, explains that in his approach to clients, the early-year window is “a mirror of the end of the year—same basic questions as we had then.” One of those questions he asks his clients at year-start concerns the prospects for new equity awards. “What grants do you expect?”

John furthermore emphasizes the importance of knowing—and giving your financial advisor—a complete picture of your equity comp and company shares. “I’m surprised how many times clients will go into the brokerage website and click and sell something without telling us what they’re doing.”

He adds that you also want to be aware of stock option grants that are scheduled to expire this year, along with what would happen to stock options and RSUs should you lose your job. If you think you may take a new job at a different company, answers to key questions will help you negotiate severance or a new compensation package.

“What option grants will expire soon or could expire if you’re laid off?” John asks his clients. “What grants do you expect to receive in the first quarter or first half of the year? What RSUs vest in the coming year?”

Job Changes Ahead?

Clients’ job situations and career goals are a routine year-start focus for Rebecca Conner, the founder of SeedSafe Financial LLC, based in Austin, Texas. Any moves in the year ahead could affect income and the need to exercise options sooner than anticipated, depending on the company’s post-termination exercise deadline. “Review job expectations. If you’re making a move this year, consider your total expected income and the impact of any stock options that you may need to exercise when you leave your current job for a new one.”

Tax Planning For Withholding

“Prepare for estimated taxes for RSU under-withholding,” advises John Owens, Managing Partner at Brooklyn FI in New York. One of the tasks he likes to do with clients as part of year-start planning is to get ahead of the game and map out the estimated payment for at least the first quarter.

Why? The federal flat withholding rate at restricted stock/RSU vesting for most employees may not cover all of the taxes you owe to the IRS, depending on your tax bracket. The flat withholding rate that most companies use for employees’ supplemental wage income is 22% (it is 37% for yearly total amounts in excess of $1 million). One way to remedy a meaningful tax shortfall is to pay quarterly estimated taxes.

ESPPs

John Owens also points out that year-start is a great time to enroll in, or review your salary contributions to, an company employee stock purchase plan. He is an ESPP fan, especially if the plan has “a good lookback provision for calculating the purchase price.” An ESPP with a discounted purchase price and a lookback can be a good deal, even if the stock price declines after enrollment.

Tax Returns

Tax season is another year-start client focus for Rebecca Conner. “Early in the year, we’ll be getting ready for tax returns, so we’re looking for forms. We’re making sure we know where things are or when things are due. We’re re-checking cash to be sure we have enough for taxes as well as all of our strategies.”

Special Issues For Incentive Stock Options

Special issues arise with incentive stock options and the alternative minimum tax. You can trigger the AMT when you exercise ISOs and then hold the shares beyond the calendar year of exercise, though this is less likely under the TCJA than it used to be. Many experts say that the first quarter of the year is the best time to exercise ISOs, given the ISO tax treatment.

Here’s why. With ISOs, when you sell the shares after holding them for more than one year from exercise and two years from grant, your entire gain over the exercise price is capital gain (no ordinary income). This a called a qualifying disposition.

However, when you hold the shares beyond the calendar year of exercise, the spread at exercise becomes part of your AMT income calculation, not your regular income tax, for that year. As you pay the higher of either your AMT or your regular income tax, an ISO exercise followed by holding the shares through the calendar year of exercise can result in paying the AMT on paper gains recognized at exercise — even if the stock price has since fallen.

Therefore, one core strategy for ISOs is to exercise the options early in the year and then re-evaluate the stock price in late December. If the stock price has fallen since exercise, you can sell before year-end and eliminate the AMT on your paper profits from the exercise spread. This is sometimes called an “escape hatch” strategy.

That is why John Owens emphasizes with his clients the importance of year-start planning for ISOs. “I love an early-year ISO exercise,” he enthuses. “Early in the year, we’re talking with clients about whether to do ISO exercises and holds.”

Exercising ISOs early in the year gives you the rest of the year to see where the stock price goes, he explains. This allows plenty of time to make decisions about whether to sell the shares or whether to hold them beyond year-end. If you owe the AMT because of the ISO shares that you hold, you can sell some of the ISO shares the following year at your long-term capital gains tax rate to pay the AMT. For startup companies, with 409A stock-price valuations staying flat or declining, John also suggests this as an early-year strategy to consider, though it brings additional risks and a lack of liquidity in the shares that you acquire.

Rebecca Conner also advises ISO exercises early in the year. She particularly favors doing so when the stock price is depressed and/or when the company’s outlook is positive. “Then if something happens during the year you can always sell the stock if you need to and disqualify it.”

Year-End Strategies

For planning actions to take at the end of the year, see the year-end section at myStockOptions. Many of the advisor recommendations presented in it remain relevant every year.

SPECIAL WEBINAR

Tax Returns With Equity Comp & Stock Sales: Prevent Mistakes & Avoid Overpaying Taxes

February 12, 2025
2:00pm to 3:40pm ET, 11:00am to 12:40pm PT
Agenda and panelist details available at the webinar registration page
Can't make the live webinar? Watch on demand!

With actionable takeaways and peer-led insights, our webinar on tax-return topics for stock comp will sharpen your knowledge of the reporting for stock options, restricted stock/RSUs, ESPPs, and sales of company shares. Plus, get special insights from the IRS, and learn from presenter case studies how to use tax-return info to create better financial plans. 2.0 CE credits for CFP, CPE (live webinar only), EA (live webinar only), CPWA/CIMA, CEP/ECA

REGISTER NOW

"The knowledge I gained from myStockOptions both as a premium member and from your webinars has made me stand out at work."
—Vincent Leonardo (EA), Tax Analyst, Intuit

Tax Planning: The Top 3 Numbers To Know For 2025

Taxes come at you fast. Planning now, in the early part of the year, can help prevent headaches later.

In fact, January is an excellent time to consider your tax planning for 2025. It occurs before tax-return season, which puts your focus on last year’s income. It also comes before the likely bustle over tax legislation by the new Republican White House and Congress. They must decide whether to extend the current tax code, introduced in 2018 by the Tax Cuts and Jobs Act, which expires after 2025.

In this calm before those storms, take a moment to understand the federal tax-related numbers for 2025 that are crucial for you.

Where to begin? The IRS and the Social Security Administration annually adjust for inflation a myriad of key numbers in federal tax-law provisions. Amid this onslaught of tax figures, it can be difficult to spot the adjustments that matter to you.

Some apply only to very high-net-worth executives and other super-wealthy people, such as the federal estate-tax exemption (in 2025, $13.99 million for unmarried taxpayers and $27.98 million for married taxpayers). The more obscure adjustments are chiefly of interest only to administrators of corporate benefit plans and other experts (like me) who keep track of this stuff. For example, the income definition of “highly compensated employee,” which affects eligibility for employee stock purchase plans and 401(k) plan non-discrimination testing, is $160,000 in 2025.

So let’s cut through the clutter and focus on the essential points. Below are three sets of tax figures in 2025 that all employees should know. They relate to compensation from work: paycheck withholding, the potential need for estimated taxes, and your retirement savings.

1. The Social Security Wage Base

The Social Security tax (at a rate of 6.2%) applies to wages up to a maximum amount per year that is set annually by the Social Security Administration. Compensation income above that threshold is not subject to the Social Security tax. (By contrast, the Medicare tax is uncapped, with a rate of either 1.45% or 2.35%, depending on your income level.)

The Social Security wage cap is $176,100 in 2025, up from $168,600 in 2024. This means the maximum possible Social Security withholding in 2025 is $10,918.20. Once your income is over the wage cap and you’ve maxed out the withholding, you’ll see 6.2% more in your paycheck.

2. Your Income-Tax Bracket And Withholding

If you’re an employee, your company withholds taxes from your paycheck according to the information on your Form W-4. The IRS recommends that you consider completing a new Form W-4 whenever your financial, personal, or job situation changes.

The table below shows the federal income-tax brackets and their rates. It can help you understand how an additional amount of compensation would be taxed at your marginal tax rate: the percent of tax you pay for an additional dollar of income in your current tax bracket. That number tells you whether the withholding as indicated on your W-4 will cover the total tax you will owe for 2025. To avoid penalizing additional income in your mind, be sure you know your effective or average tax rate.

Need To Pay Estimated Taxes?

Additional compensation received, such as a cash bonus or income from a nonqualified stock option exercise or vesting of restricted stock units, is considered supplemental wage income. For federal income-tax withholding, most companies do not use your W-4 rate for that income. Instead, they apply the IRS flat rate of 22% for supplemental income (the flat rate is 37% for yearly supplemental income in excess of $1 million).

As shown by the table above, once you know your marginal tax-bracket rate, you may find the withholding rate of 22% does not cover all of the taxes that you will owe on supplemental wage income. In that case, you must either put extra money aside for the 2025 tax return you will file in 2026, pay estimated taxes during 2025, or adjust your W-4 for your salary withholding as soon as possible to cover the shortfall. Speak with a qualified tax professional, such as a CPA or an Enrolled Agent, when you’re uncertain about the best approach to take.

If estimated taxes are the route you choose, know that due dates for quarterly estimated tax payments in the 2025 tax year are April 15, June 16, and Sept. 15 of 2025 and Jan. 15 of 2026. (The IRS routinely postpones these due dates for taxpayers in areas of the United States affected by natural disasters, such as the Jan. 2025 wildfires in Southern California. See the IRS website section Tax Relief In Disaster Situations.)

3. Your Contribution Limit For Qualified Retirement Plans

In 2025, you can elect to defer up to $23,500 from your paychecks into qualified retirement plans, such as your 401(k) (or your 403(b) if you work for a nonprofit, school, or government agency). That annual limit rose from $23,000 in 2024.

The total ceiling for deferrals to defined contribution retirement plans, including any extra part contributed by your employer, rose to $70,000 in 2025, a $1,000 increase over last year’s amount. If you are at least 50 years old, you can contribute an additional $7,500 per year.

The amount of compensation income that can be considered in the calculation for qualified deferrals grew to $350,000 in 2025. Check with your company’s 401(k) plan administrator for the process of making changes in your compensation deferral election.

Want To Defer More Income?

Look into whether your company has a nonqualified deferred compensation plan, sometimes called an excess 401(k) plan. For more on these plans, see the website myNQDC.com.

Inflation Adjustments For Health Savings Accounts

While not all employees have them, health savings accounts (HSAs) are also getting an increase in their pre-tax contribution limits for 2025 in response to inflation. HSAs are available only for high-deductible health plans.

The IRS has raised the yearly contribution limit for HSAs. For self-only coverage it is $4,300 in 2025, up by $150 from last year. For family coverage it is $8,550 in 2025, up from $8,300 in 2024. The limit for HSA catch-up contributions, available for people 55 or older, remains $1,000. With more companies setting up pre-tax payroll deductions for HSAs and matching employee contributions, these increases could be significant for many people as the cost of health care continues its relentless rise.

IRS Resources

Here are resources with more details on the many adjusted 2025 tax numbers:

• Revenue Procedure 2024-40 gives inflation adjustments in various income-tax-related provisions for 2025, which are also summarized in a more reader-friendly IRS news release.
• IRS Notice 2024-80 gives the annual adjustments in 2025 for various tax-qualified retirement plans.
• Revenue Procedure 2024-25 has details on the HSA contribution limits for 2025.